Introduction to Risk Management
During software development, there are many factors, which need to keep in mind. Every business comes with certain risks and it applies in the software industry as well. Being aware of the risk is not enough. A project manager must also be ready if certain critical situations arise. This is where risk management comes. Risk is something, which could happen and cause some loss or threaten the progress of the project. To avoid such loss we create a “Risk Management” plan.
What is Risk Management?
Risk management is the process of identifying, analyzing, and controlling the risks during and before the software development. Let us understand those terms thoroughly:
1. Risk Identification
This is the first step in risk management. It is the process of identifying the risk in project development. It also includes documenting those risks along with the characteristics.
The process is constant and carried throughout the project development. As the project evolves, we get to know it better. We can explore and identify more unvisited or hidden risks. This phase helps in two types of risk:
- Product Risk: A risk, which may arise due to functionality or unable to meet user expectations.
- Project Risk: A risk, which involves any unexpected event which may occur and impact the progress of the project.
The senior management like a business manager, project manager, test manager, and client, does this process. They collaborate and brainstorms the idea of project risk, and create the risk document.
2. Risk Analysis
The risks have been identified now it is time for the analysis process. In this stage, we analyze and prioritize the risk. I.e. what could be the outcome if any of the identified risks occur? Based on that those risks are get Categorized. What is the impact if any of the risks occur? Based on it the severity is identified. The severity could be “High”, “Medium”, or “Low”. This also helps in prioritizing the risks.
3. Risk Control
In this stage, we try to control and mitigate the risk based on their category and priority. This is divided into three parts:
- Risk Management Planning: It includes proper and effective planning to deal with identified risk.
- Risk Resolution: This involves removing or resolving the identified risk.
- Risk Monitoring: This involves monitoring the progress towards resolving issues and taking appropriate
Why Risk Management is Important?
1. Precaution is better than cure. Knowing the risk in advance and having a contingency plan helps in preparing in advance. This helps in lower the impact on the progress of the project and the cost in the end.
2. Consider a small example of the software industry. Today we all run on the internet. What if one fine day the lease line gets broke for any reason. What is the backup plan? How the day-to-day work is going to continue. As an organization, these are such issues, which you cannot control. For this kind of situation, you should have a backup plan.
3. Therefore, no internet is an identified risk. When you analyze it you will know that this is a “High” priority and a major risk. This will affect your business in terms of cost and productivity. Now, what are your steps to resolve the risk? Having a backup lease line? Good idea right? It is up to the organization how they want to recover from such a situation. In the end, it is all about reputation and money. If you cannot deliver, you cannot run in the market.
4. Risk management is as important as project development. If the organization cannot prevent or handle the risk then it is highly likely to vanish. Risk is involved in every type of business. According to a study called “Chaos Report” for projects in information technology, the following conclusion has drawn:
- 39% of projects finish on time and budget
- 43% of projects are challenged
- 18% are canceled before its deployment To summarize the benefits of risk management:
- It ensures the successful completion of the project
- It enhances the revenue by saving the expenses
- It gives confidence and a competitive edge over other industries
- It also helps in exploring new opportunities
- It helps to avoid a big disaster
Examples of Risk Management
Below is an example of a risk management plan:
where: Likelihood: This denotes the possibility of a risk to occur.
|A||Almost Certain||Expected to occur in most
|B||Likely||Will probably occur in most
|C||Moderate||Should occur at sometime|
|D||Unlikely||Could occur at sometime|
|E||Rare||May occur only in exceptional
Consequence: This denotes the effect of the risk, which may occur
|1||Insignificant||Low financial loss|
|2||Minor||Medium financial loss|
|3||Moderate||High financial loss|
|4||Major||Major financial loss
And may create a reputation in the market
|5||Catastrophic||The system is unable to meet user requirements, bad user
experience, Huge financial loss
H: High risk, detailed research, and management planning required at senior levels.
S: Significant risk; senior management attention needed.
M: Moderate risk; management responsibility must be specified.
L: Low risk; manage by routine procedures.
Risk – What and how can it happen
|Consequence||Likelihood||Existing Controls||Consequence Rating||Likelihood Rating||Level of Risk||Risk Priority|
|Requirement s are not clearly defined||The built system is a failure||Likely||Scheduling interviews with the customer, Continuous feedback from
|Loss of database connection||User is unable to access the
|Rare||Activating the failover group||5||E||Significant||2|
A good project manager knows that risk happens. When you start planning for a project the next thing comes into your mind is what could go wrong? Have mitigation strategies handy and you saved yourself from big trouble.
This is a guide to What is Risk Management?. Here we discuss Introduction to Risk Management and why it is Important along with its various examples. You can also go through our other suggested articles to learn more –